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On Apr 22, we reiterated Baxter International (BAX - Analyst Report) at Neutral, based on the company’s narrow beat of the Zacks Consensus Estimate for earnings. We also noted the company’s maintenance of earlier issued guidance for 2013.

Why the Reiteration?

Baxter reported first quarter adjusted (excluding one-time items) earnings per share of $1.05, thereby beating the Zacks Consensus Estimate of $1.04 and surpassing the year-ago earnings of $1.01. Revenues for the quarter were $3,448 million, up 2% (up 2% in constant currency) year over year. The first quarter result was in accordance with the company’s earlier stated guidance.

Following the release of the first quarter results, the Zacks Consensus Estimates for 2013 and 2014 have shown marginal downward movement (over the past 7 days) of a penny to roost at $4.65 and $5.16 for 2013 and 2014, respectively.

In December 2012, Baxter inked a definitive agreement to take over Gambro AB, a privately-owned Swedish renal products company. The full consideration amounts to 26.5 billion SEK or about $4 billion. The deal is expected to close in the first half of 2013. The Gambro acquisition strengthens Baxter’s role in the hemodialysis market. It will be able to serve both acute and chronic dialysis patients.

We believe that the company’s acquisitions (Baxa Corporation, Synovis Life Technologies and Gambro) will pay off in the longer term. However, we remain wary of near-term dilution associated with the company’s acquisition of Gambro. Baxter forecasts that the Gambro deal will dilute adjusted earnings per share (excluding special items) by 10 cents to 15 cents for 2013 and be neutral to moderately accretive for 2014.

Med-Tech Stocks that Warrant a Look

Baxter carries a Zacks Rank #4 (Sell). NuVasive, Inc. (NUVA - Snapshot Report), The Cooper Companies Inc. (COO - Analyst Report) and Medical Action Industries Inc. carry Zacks Rank #1 (Strong Buy), Zacks Rank #2 (Buy) and Zacks Rank #2 (Buy), respectively, and are expected to do well.

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